6/22/2009 @ 7:30AM

Airbus: Made In China

Will emerging markets make or break the aerospace industry? Though the airline industry is suffering across the world, executives from Boeing and Airbus talked up the prospect of future demand from China as one bright spot at this months Paris Air Show. And on Tuesday, Airbus will deliver its first China-assembled A320, part of a joint venture that could help the plane-maker take more market share from its American arch-rival.

The Airbus A320, which was assembled at a plant in Tianjin that is 49%-owned by a Chinese consortium, will be delivered to a leasing company and eventually put into service by Sichuan Airlines. Airbus expects to produce a further 10 aircraft in Tianjin this year.

Both Airbus, a subsidiary of
European Aeronautic Defense and Space
, and Boeing expect great things from the Chinese market.
Boeing
has forecast that China will become the largest aviation market outside the United States by 2028, with the mainland set to require 3,700 additional aircraft in that time. Airbus last year estimated a slightly lower figure, closer to 2,800, and is still hoping to increase its market share to 50% in the next few years, from the mid-30s.

The problem is that for now, Chinas airlines have not been spared the recessions blow to the regions export-driven economies. The International Air Transport Association expects Asian carriers to lose $3.3 billion this year–which would be the worlds worst regional performance–and there is even talk of mergers among Chinas unprofitable airlines to cope with overcapacity.

Its an obvious disconnect, but not one that will last, according to Doug McVitie, managing director of consultancy firm Arran Aerospace. He says that once the global economy recovers, Chinas incredible aviation growth prospects will put the West to shame. “China will be a huge economic player nationally and internationally instead of just being a major export player,” he says, adding that this will directly feed through into increased transport network links and a rise in economically-active Chinese.

China is even plotting to roll out its first domestically-produced jumbo jet by 2015, after taking a more humble first step with the ARJ-21 regional jet. (See “Asia’s Aviation Upstarts.”) Analysts are skeptical as to whether the finished product will be convincing enough to rival established players, but EADS chief executive Louis Gallois told Forbes at the Paris Air Show that the industry should take seriously the efforts of the Chinese to enter the plane-building market.

As for whether growing demand for aircraft from China will benefit Airbus or Boeing, it might at first glance seem that Airbus presence in Tianjin would help its chances, especially at a time of protectionist sentiment in China. (See “The Buy Chinese Trade Dispute.”) But McVitie thinks that Boeing–currently the market leader in China–will benefit from Chinas more strategic approach, which is designed to strengthen trade links with a wide array of partners and to avoid heavily favoring one plane manufacturer over another.